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IRS Releases Draft 2016 Forms 1094 and 1095

On July 13, 2016, the IRS released drafts of the 2016 Forms 1094 and 1095 used to satisfy the Affordable Care Act’s employer shared responsibility and individual mandate provisions under Internal Revenue Code Sections 6055 and 6056. The accompanying draft instructions for completing the forms were not released, but we expect them to be published by the end of August. The forms themselves have not substantively changed. The instructions for recipients of Form 1095-C (attached as part of draft Form 1095-C itself) include some subtle changes to offers of coverage reported by employers in Form 1095-C, Part II, Line #14, as the IRS indicated earlier this year. 1I – In 2015, this code reflected an employer’s use of the 2015 Qualifying Offer Transition Relief. This code is “reserved” and will be unused in 2016. 1J and 1K – These new codes reflect conditional offers made to spouses. The draft instructions… Continue Reading

ERISA Does Not Preempt Michigan Paid Claims Tax

In Self-Insurance Institute of America v. Snyder, the U.S. Court of Appeals for the Sixth Circuit ruled that ERISA does not preempt a Michigan state statute requiring insurers and third-party administrators (“TPAs”) of self-funded group health plans to pay a one percent tax on all “paid claims” that such entities make to medical service providers.  The statute also requires insurers and TPAs to (i) file quarterly returns with the Michigan Department of the Treasury, (ii) keep accurate and complete records, and (iii) develop and implement a methodology for collecting the tax.  By way of background, earlier this year the U.S. Supreme Court vacated the Sixth Circuit’s 2014 decision in this case (which also held that the Michigan statute was not preempted by ERISA) and remanded the case for further consideration in light of the Supreme Court’s recent decision in Gobeille v. Liberty Mutual Insurance Co.  In Gobeille, the Supreme Court… Continue Reading

Lessons Learned on Insuring Cyber Risk from P.F. Chang’s and State Bank of Bellingham: What to Look for in Placing Dedicated Network Security/Privacy Liability Insurance

With ever-increasing malware, spear phishing and ransomware attacks on corporate America and ever-contracting terms insuring “cyber” liability under traditional insurance, more and more risk managers are venturing into the market for dedicated network security and privacy liability or “cyber” insurance.  Others remain dubious—preferring “traditional” coverage to policies that are little understood and even less tested by claims.  Over the past several weeks, two judicial decisions have been issued addressing coverage for cyber risk under “traditional” and “cyber” policies.  The score for policyholders: cyber insurance: 0; traditional insurance: 1. In P.F. Chang’s China Bistro, Inc. v. Federal Insurance Company, a federal district court judge in Arizona denied P.F. Chang’s coverage under a specialized “CyberSecurity” policy for its liability for more than $1.9 million in credit card “assessments,” representing the cost of fraudulent charges paid by Visa and MasterCard after hackers obtained some 60,000 credit card numbers from restaurant customers in 2014. … Continue Reading

IRS Releases Additional Guidance on Determination Letter Program Changes

Rev. Proc. 2016-37 provides new guidance on changes to the IRS’s determination letter program for individually designed, qualified retirement plans.  As previously announced in Notice 2016-03, the five-year remedial amendment cycle for individually designed plans will be eliminated effective January 1, 2017.  After that date, individually designed plans may only seek a determination letter for the plan’s initial qualification, upon the plan’s termination, and in “certain other circumstances.”  Rev. Proc. 2016-37 states that such “other circumstances” may include significant law changes, new plan design approaches, and the inability of certain plans to convert to pre-approved plan documents.  The IRS will consider its current case load and available resources when deciding if and when to permit determination letter requests in these other circumstances.  To help plan sponsors remain in operational compliance with the Internal Revenue Code’s various qualification requirements, the IRS will begin issuing an annual Operational Compliance List that identifies… Continue Reading

IRS Issues Proposed Section 409A Regulations

The IRS recently issued proposed regulations that would amend the final regulations issued under Section 409A of the Internal Revenue Code. These regulations provide a number of clarifications and changes in response to practitioner comments. For instance, the regulations clarify that the separation pay plan exception may apply to a service provider who had no compensation in the year preceding the year of the separation from service. In such situations, annualized compensation from the year of separation is used. In addition, the term “eligible issuer of service recipient stock” now includes an entity for which a person is reasonably expected to begin, and actually begins, providing services within 12 months after the grant date of a stock right (i.e., an inducement option). The regulations also clarify that (i) a service provider’s right to reimbursement of reasonable attorneys’ fees and other expenses incurred to pursue a bona fide legal claim against… Continue Reading

EEOC Provides Sample ADA Wellness Program Notice

The EEOC recently released a sample notice, along with a series of questions and answers, to assist employers that offer wellness programs in satisfying the notice requirement set forth in the final regulations regarding the compliance of employer-sponsored wellness programs with the Americans with Disabilities Act (“ADA”). Use of the sample notice is not mandatory, but employers that offer a wellness program are required to provide a notice to employees which informs them, in an understandable manner, of (i) the information that will be collected by the employer in connection with the wellness program, (ii) how such information will be used, (iii) who will receive it, and (iv) how it will be kept confidential. The effective date for compliance with the new ADA notice requirements is the first day of the plan year beginning on or after January 1, 2017. The sample notice is available here. The questions and answers are… Continue Reading

Proposed Regulations Issued Addressing Expatriate Coverage, Excepted Benefits, and Essential Health Benefits

On June 10, 2016, the IRS, DOL, and HHS released proposed regulations clarifying when expatriate health coverage qualifies for exceptions under the Affordable Care Act (the “ACA”), when certain coverage will qualify as excepted benefits under the ACA, and how self-insured and large group insured plans should define essential health benefits. Expatriate Coverage In general, an expatriate health plan will be exempt from the ACA’s plan design requirements; the PCORI, Transitional Reinsurance, and Health Insurer fees; and will qualify as minimum essential coverage for covered individuals subject to U.S. tax law if the following are true: At least 95% of the primary enrollees are expatriates (disregarding non-U.S. citizens residing in their home country); The insurance carrier or plan administrator in conjunction with a third party administrator meets certain business criteria; The plan covers inpatient, outpatient, physician, and emergency services; The plan is reasonably believed to meet the ACA’s minimum value… Continue Reading

Breach of Fiduciary Duty Class Action Targets Relatively Small 401(k) Plan

Over the past several months, high profile class action lawsuits have been filed against plan sponsors and fiduciaries of very large 401(k) plans alleging breaches of fiduciary duty related to excessive plan administrative fees and underperforming investment options. A new class action lawsuit filed in the U.S. District Court of Minnesota raises concerns that plan sponsors and fiduciaries of relatively small 401(k) plans may also become targets of such suits. Similar to the class actions filed against fiduciaries of large 401(k) plans, plaintiffs in the case of Severson v. LaMettry’s Collision, Inc. allege their employer, its president, and its CFO breached their fiduciary duties by causing the employer’s 401(k) plan to pay excessive administrative fees, selecting imprudent classes of investments, and selecting investment options that were unnecessarily expensive. Unlike the other class actions, the LaMettry 401(k) plan is relatively small, having just over 100 participants and approximately $9.2 million in… Continue Reading

Out-of-Network Hospital Prevails in ERISA Claims Against Cigna

In the case of Connecticut General Life Insurance Company v. Humble Surgical Hospital, LLC, Cigna, as third-party administrator for various group health plans subject to ERISA (the “Plans”), sued Humble Surgical Hospital (“Humble”), an out-of-network provider, to recover overpayments Cigna had allegedly paid to Humble as a result of Humble’s “fraudulent billing practices,” such as waiving patients’ financial responsibility under the terms of the Plans. Prior to bringing its suit, Cigna had begun processing claims submitted by Humble outside of its standard claims processing model, based on Cigna’s determination that such claims were fraudulent. This resulted in Cigna paying significantly less on Humble’s claims than it would have paid if Cigna’s standard out-of-network repricing methodology had been utilized. Consequently, Humble countersued Cigna under ERISA, based on its status as an assignee of the Plans participants’ claims, seeking payment for underpaid claims as well as monetary penalties under ERISA for Cigna’s… Continue Reading

IRS Issues Guidance Regarding Taxation of Wellness Program Rewards and Reimbursements

The IRS recently released a memorandum from the Office of Chief Counsel of the IRS, which states that cash rewards provided under an employer-sponsored wellness program may not be excluded from an employee’s gross income under Sections 105 or 106 of the Internal Revenue Code of 1986, as amended (the “Code”), even if the program generally qualifies as an accident or health plan under Code Section 106. The fair market value of any non-cash wellness program rewards that cannot be excluded from income as either (i) medical care under Code Section 213(d) or (ii) de minimis fringe benefits under Code Section 132(e) (e.g., gym memberships) must also be included in income. Finally, reimbursements to employees of any portion of wellness program premiums paid through salary reduction under a Code Section 125 cafeteria plan must also be included in gross income. The memorandum is available here.

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